Mineral extractors, oil producers boost European shares

China economy recovery hopes key; banks also advance

By

SarahTurner

LONDON (MarketWatch) -- European shares advanced on Wednesday, as hopes for a strong economic recovery in China prompted solid gains for metal extractors and oil producers.

The pan-European Dow Jones Stoxx 600 index (SXXP) climbed 1.1% to 212.58, with most of the 15 Stoxx industry sectors in the green. The index rose as high as 215.05 in the session, a level not seen since November.

Metal extractors were the best performers by sector in percentage terms, with Xstrata (XTA) shares up 6.9% and Vedanta Resources (VED) up 8.5%.

Shares of Kazakhstan-based mineral extractor Eurasian Natural Resources (ENRC) jumped 8.1% after it said first-quarter sales and production volumes exceeded expectations and that a weakening U.S. dollar may push high-carbon ferrochrome prices up.

On a regional level, the U.K. FTSE 100 index (UKX) rose 0.7% to 4,436.75, the German DAX 30 index (1876534) rose 1.1% to 5,051.18 and the French CAC-40 index (PX1) climbed 0.6% to 3,315.27.

Two Chinese newspapers reported that industrial production data for May, due to be officially released Friday, rose 8.9%. The newspapers both accurately reported PPI and CPI data ahead of the official release Wednesday. Read more on China data.

"These sorts of rumors only move the market when people want to believe them and they want to believe that China is recovering very strongly," said Oliver Russ, fund manager at Argonaut Asset Management.

"I've got quite a lot of oil. That's the way I've been playing it -- which is a slightly lower beta way -- but there is a fundamentally good case to be made for oil supply and demand over the longer term," he added.

Light sweet crude futures traded at more than $71 a barrel, a level not seen for more than seven months. Read more on oil.

"Large-cap oils still offer attractive yields supported by balance sheet flexibility, which should enable them to ride out a likely volatile and challenging economic and oil macro in the second half of 2009 at least," the broker said.

Banks advance

"The liquidity problems that they endured last year are over. The question now is turning to profit and loss, where you can get some quite cheap valuations," said Russ at Argonaut on the banking sector.

Sweden's central bank on Wednesday said it had borrowed 3 billion euros ($4.2 billion) from the European Central Bank to help shore up its foreign currency reserves.

"As a substantial part of the Swedish banks' funding is in foreign currency, the Riksbank needs to have a sufficiently large foreign-exchange reserve to be able to meet a potential need from the banks," the Riksbank said. Worries have grown over Swedish bank exposure to Latvia and other Baltic nations. See full story.

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